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France 



Her Problems 

How She Is Handling Them 



An Address by 
BARON JACQUES de NEUFLIZE 

(of the Banking Firm of de Neuflize &. Co., Paris, War 

Representative of the Bank of France 

in the United States) 



France— Her Problems 

How She Is Handling Them 



An Address by 

BARON JACQUES de NEUFLIZE 

(of the Banking Firm of de Neuflize & Co., Paris, War Representative of 
the Bank of France in the United States) 



July 16th, 1919 



Published by 

"LA FRANCE" 

The Franco-American Magazine 

220 West 42nd Street 
New York 






o: «f ». 

SEP 1« 1919 



v^ 






FRANCE-HER PROBLEMS- 
HOW SHE IS HANDLING THEM 

An Address by Baron Jacques de Neuflize, at a Dinner tendered 

by M. Casenave, General Director of the Services Francais in 

the United States, to Representatives of the New York Press, 

July 16. 1919. 

WE have all heard of the man who, expecting 
boiled eggs for breakfast, was reduced to 
despair when the cook broke the eggs into a bowl for 
an omelet. 

Let us not worry here about the omelets they are 
making in foreign countries, when we have been ex- 
pecting boiled eggs. 

* * * 

The fact is, and it is as true for a Frenchman in 
America as for an American in France, that it takes 
time to understand a foreign country and to trans- 
late what you see and what you hear into your own 
formulas and standards. I go so far as to consider 
it a mere detail that in a foreign country the people 
you meet have a better knowledge of their own lan- 
guage than of yours. This can be overcome easily, 
but what is more difficult and takes time and patience, 
is to understand the surroundings, the form of 
thought and its expression, the ways in which the 
people work. 



FRANCE — HER PROBLEMS — HOW SHE IS HANDLING THEM 

Now, let us take France and America. 

We have great similarities. We are idealists, we 
have courage and stubbornness, we are individualists 
and kickers. We have also great differences. 

Your country is fifteen times bigger than ours, 
while your population is only three times larger. That 
means that the density of our population is five times 
greater than yours. We are a very old country, 
while your amazing development dates from the last 
century. 

You have big stretches of farm land, with a deep, 
fertile soil ; we have small farms, in varied land irreg- 
ularly shaped, and often with little depth of produc- 
tive earth. 

You have extraordinary mines, with coal and ore 
nearly at the surface; we have to go three or four 
thousand feet deep to get it. 

Our railroads, as Mr. Harriman told me once, are 
merely a street-car proposition, and although I felt 
insulted at the time, I understand what he meant. 

Now, of course, the business mind of the people 
and their ways of working are affected by the place 
they are working in and on. 

The French people have worked France success- 
fully for fifteen hundred years, and you will, in com- 
paring the successful American and French business 
man, find that the American is more enterprising, 
quicker, looks out for the big opportunity, is ready 
to take a plunge, conceives big organization with 

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FRANCE — HER PROBLEMS — HOW SHE IS HANDLING THEM 

quick realization. That the Frenchman is more con- 
servative, more thorough, more interested in the de- 
tails, unwilling to take too big a risk. 

Now, in both cases they fit their respective coun- 
try; big America with its enormous resources not 
wholly developed; small France, densely populated 
and its resources thoroughly developed. 



If I am not mistaken, the three points which have 
been mostly raised by friends returning from France 
are: 

(1) Political management. 

(2) Insufficient taxation. 

(3) Our supposed unwillingness or inability to 
work. 

There is a preliminary point which must not be 
overlooked, because it affects the whole proposition. 

France is coming out of four and a half years of 
war, waged suddenly upon her at a time when there 
was a general economic crisis throughout the world. 

America came into the war two and a half years 
later after a period of unheard-of prosperity. 

Our war expenses were double yours, although if 
I refer to the statistics published here by your banks, 
our pre-war wealth was only one-fifth of yours. 

Our losses in men killed have been one million and 
a half ; the same proportion for you would have meant 



FRANCE — HER PROBLEMS — HOW SHE IS HANDLING THEM 

every single American who wore a U. S. uniform 
being killed. 

I hope you fully understand what I mean when I 
say this; it is not to overrate the share of France in 
the war, but we are discussing an economic and finan- 
cial problem, and I cannot do it if I do not refer to 
the facts underlying the whole situation. 



Now, I have heard hundreds of times — America 
does this and this; why don't you do the same? 

And I must acknowledge that I have felt several 
times like the farmhand who had to walk ten miles 
to go to church and then ten miles back home, and 
who was blamed for not having been to church the 
Sunday before by a man who never missed church, 
since he had an automobile. 

What I want to show you in a few words is how 
we in France understand our actual problems; what 
we have not yet done and why ; what we have already 

done. 

* * * 

To understand political management in France, 
Americans must not overlook these things: 

First. — That our Government can at any time fall, 
if put in minority in the Chamber. This means that 
our executive must in every day's action take into 
account the parliamentary situation and keep a ma- 
jority. That makes it much more difficult than here. 



FRANCE — HER PROBLEMS — HOW SHE IS HANDLING THEM 

Second. — We had the privilege and the respon- 
sibility likewise of having the peace conference in 
Paris. This meant among many other things the 
necessity of enforcing an exaggerated censorship on 
our papers by courtesy to our guests, and its conse- 
quence was an underlying nervousness of public opin- 
ion, increased by the fact that every peace delegation 
was the source of conflicting gossip. 

Third. — The very small, but noisy and well-or- 
ganized, minority of bolsheviks and radicals in parlia- 
ment affected our parliamentary machine, weakened 
already by the perspective of elections next Sep- 
tember. 

Fourth. — The efforts and suffering of France for 
five years made it imperative for our Government to 
settle first of all the question of peace; first let a 
readjustment of the country and of the people take 
place, and not ask new sacrifices of the people before 
they had found themselves again. 

These things are at present out of the way. Next 
Fall we shall have a new parliament, and with four 
years ahead of them they will be able to work. 



The taxation problem has been affected by the po- 
litical problem which I have just explained. 

Besides the problem is not exactly as easy as it 
was in this country. 



FRANCE — HER PROBLEMS — HOW SHE IS HANDLING THEM 

You were able to put up comparatively heavy taxa- 
tion from the start, because you were in an economic 
situation in 1917 which permitted it, because you have 
the advantage of a great number of large incomes 
which can bear a large share of the total taxation; 
finally, because, after all, heavy taxation here is only 
temporary, and therefore its imperfections are less 
burdensome, because relief is in sight within a few 
years. 

With us, owing to the share in the war which has 
been our lot, the exceptional taxes which have to be 
raised will have to be paid by us for a very long 
period of time. Therefore, to enable our people to 
accept them, we must be very careful in the enact- 
ment of the new fiscal laws and base them on a sci- 
entific survey of our resources. 

Besides, we have only very few large single in- 
comes; taxation to yield something must reach the 
small people. That makes the problem more difficult, 
because you must make everybody admit that he is 
taxed iustly. 

I suppose you remember all the talk at the begin- 
ning of this year about reconstruction in this country 
and many industrial and commercial leaders here be- 
lieving they were ruined. If this moral hesitation was 
permissible here, don't you think that we, in France, 
were wise to let things settle down before trying to 
solve all our problems at once? 

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FRANCE — HER PROBLEMS — HOW SHE IS HANDLING THEM 

We had 18 per cent of our male population away; 
90 per cent of our factories were diverted to the pro- 
duction of war stuff. 

Now, the first thing for taxation is not taxes. Our 
Government problem is to get taxable income. Tax- 
ing it afterwards is easy, provided the political situ- 
ation is straightened out, and this, as I have shown 
you, will happen next Fall. 

Therefore, the real question comes to this: Will 
there be a big enough taxable income in France, or 
in other words, are French people working? 

Now, to this question I very emphatically and posi- 
tively answer, Yes. They want to work and they are 
working. It has been one of the most remarkable 
things in France to see, the day of demobilization, — 
everybody going back to his old j ob. In certain cases 
we have noticed a certain staleness in the productiv- 
ity of the workmen and employees, but the good will 
remains and the efficiency of the returned soldiers is 
already very near normal. 

Do you realize that to date we have 90 per cent of 
our destroyed railroads reconstructed, and that our 
canal communications in the north and east of France 
are 80 per cent restored? 

That all our automobile factories that had been 
turning out shells, artillery, tractors, and so on, are all 
in full swing again constructing cars with plenty of 
purchasers in sight, and that deliveries are already 
beginning? 

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FRANCE — HER PROBLEMS — HOW SHE IS HANDLING THEM 

That our spinning and woolen industries are ahead 
of our supply of raw materials, and that many fac- 
tories in the devastated regions are already reopened? 
Some have still oil paper ceilings, and canvas walls, 
and odd machinery, but they work. 

I remember the emotion it caused me when I saw 
a few months ago the first bills drawn by a manufac- 
turer of Lille on his customers against the delivery 
of his first goods. Now I am blase about it, because 
so many have resumed; but I would wish that more 
people would see these efforts and these manifesta- 
tions of will to work, because they picture better the 
real France than any efforts I might make. 



There is an interesting comparison to illustrate the 
French way of doing things. 

You recollect that at the beginning of 1915 France 
was short of shells and of artillery. In 1918 we had 
an enormous supply for ourselves and were even able 
to furnish our American friends with all the war 
material they needed and could not obtain at home. 

Now, I am unable to find that at a certain date a 
certain move changed the situation. The improve- 
ment came by itself as the result of the individual 
efforts of the French people. To-day it is more or 
less the same. We are supposed to have been unable 
to do anything yet to solve the problem of recon- 

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FRANCE — HER PROBLEMS — HOW SHE IS HANDLING THEM 

struction. Now let me tell you that I believe that it 
will never be solved as a whole, for many reasons, but 
mainly because the problem as a whole does not exist 
except in the imagination of people who attempt to 
concentrate in one tens of thousands of different 
problems. 

However, it does not prevent reconstruction going 
on, every fellow working on his own salvation. They 
do not talk; they have no time for that, they prefer 
to work. A few talk, and of course it is those who 
lack the energy, the supreme will, or the ability for 
their task. But they are only a small minority, not 
representative of the situation, and perhaps as soon 
as next year people will be amazed to discover that 
the economic activity of France is in full swing, with- 
out being able to explain how it has been done. 

Last January I had the privilege to be one of the 
speakers at the annual dinner of the New York 
bankers. At that time they were all desirous to go 
to France and do business there. And I told them 
they would come back disappointed, because I knew 
that the situation was different from what they ex- 
pected to find. 

Many have come back disappointed, as it appears 
in their statements. 

To-day I am willing to make a new forecast, and 
that is, that they will be disappointed again. This 
time the other way. I do not expect to be believed 

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FRANCE — HER PROBLEMS — HOW SHE IS HANDLING THEM 

any more this time than I was in January. But it is 
as easy to arrive too late as to go too soon. 



The talk of the day is at present American-Euro- 
pean cooperation. 

There are American goods needed abroad; there 
are American producers who want to sell their goods. 

At first sight this seems easy. 

I frequently hear proposals for solving the Euro- 
pean situation. 

That impresses me about the same as if a compe- 
tent person tried to find a single rule to feed all ani- 
mals, and was proposing the same diet for an ele- 
phant and a donkey, a camel and a chicken. 

In Europe there is still more difference between 
the various nations than between the countries of the 
American continent. 

How would it appeal to you if the same business 
methods were proposed for the United States, Mex- 
ico or Central America? 

Therefore, I will not try to tackle the whole Euro- 
pean problem; I will just try to sum up the French 
point of view. 

French people believe that their credit is very good. 
At the beginning of the war there were five to six 
billions of francs of trade acceptances outstanding. 

In forty-eight hours, 3,000,000 men were mobil- 
ized and 2,000,000 more in the next fortnight. Of 

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FRAN CE — HER PROBLEMS — HOW SHE IS HANDLING THEM 

course, this stopped practically everything, and the 
only remedy was to proclaim a general moratorium. 
Now, of these frozen bills to date, only eight hundred 
million francs are still unpaid, and it is expected that 
finally not more than half of the amount will remain 
unpaid ; these being practically all bills drawn on peo- 
ple killed or ruined by the war. 

Is that not a tremendous show of the strength of 
the French credit system — that after this five years' 
tragedy less than one hundred million dollars of bills 
remain unprotected? 

The French laws are very good and efficient. They 
are simple and a pledge can be very quickly and eas- 
ily enforced. 

Our banking system is very strong. Our banks 
were able to get themselves out of the moratorium in 
one year and are at present very liquid and can give 
to their customers the assistance they need. 

We have established a large, new institution to 
make loans to the people of the devastated regions 
and discount the indemnities alloted by the French 
Government. The capital is subscribed and any day 
upon ratification of the charter by the parliament, 
the "Credit National" will start its activities. 

Our investment market is good, industrial bonds 
and notes are easily absorbed; the city of Paris just 
issued a loan of 1,500,000,000 francs, which is quoted 
at 3 per cent premium. 

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FRANCE — HER PROBLEMS — HOW SHE IS HANDLING THEM 

The advances of the Bank of France to the French 
Government, notwithstanding heavy expenditure for 
cancellation of war contracts and payment of demo- 
bilization money, are progressively decreasing. 

For the first three months of 1919 they were 4,450 
million francs. In April they were 800 million. In 
May, 500 million. In June, 300 million. Taxation 
receipts are increasing: April, 804 million francs. 
May, 806 million. June, 944 million. 



We have two big problems still at hand; the first 
concerns us only. It is financing definitely the 
French Government through conversion into long- 
term bonds of the short term securities and the sur- 
plus indebtedness at the Bank of France. That is 
a big job. We will do it. We know how to deal 
with the French people. 

Our methods are perhaps not so brilliant as yours, 
but we succeeded with them after the war of 1870, 
when we were beaten; therefore, this time, when we 
are victorious, I am perfectly confident that our 
methods will work successfully once more. 

The second problem which interests you is our ex- 
change, and our foreign purchases. We are much 
in the same position as a railroad with a maturing 
bond issue. How does a good railroad pay? It has 
no money, it has only equity. 

Therefore, it has to borrow again, until it can re- 

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FRANCE — HER PROBLEMS — HOW SHE IS HANDLING THEM 

pay by installments through a sinking fund what it 
owes. 

Besides, the railroad also issues equipment bonds to 
buy whatever material it needs to assure its traffic. 

All this is considered very normal here. 

A country like mine is exactly the same on a larger 
scale. 

We were perfectly balanced before the war; we 
were even loaning half a billion of dollars a year to 
foreign countries. 

But during five years we only attended to the 
business of not being beaten by the Germans. 

Therefore, we have neglected our export trade and 
accumulated an adverse foreign balance. 

Our exchange is bad at present, because foreign 
credits are smaller than our needs temporarily. Dol- 
lars are scarce and, as we have all sorts of stocks to 
replenish, the demand for dollars is bigger than the 
supply, and like wheat after a bad crop the price 
raises. 

But we still have equity, good equity, lots of equity, 
behind tKe franc, and if it was only a question of its 
intrinsic value, you would not get 6.80 francs for a 
dollar. 

Therefore, the whole situation sums up in this: As 
we are short of dollars, how can we buy American 
products and how can we pay for them? For a rail- 
road the Americans are satisfied to take its securities. 

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FRANCE — HER PROBLEMS — HOW SHE IS HANDLING THEM 

Can we place our securities here? That is the 
problem. 

There is no doubt that there are at least one million 
Americans who would gladly take one French bond 
of a hundred dollars or more. 

This would make a large sum, which would speed 
up our reconstruction and inside reorganization tre- 
mendously. 

But how to reach those willing purchasers — that is 
what neither ourselves nor our American advisers and 
friends have been able to find out yet. 



Of course, we are passing at present through a sort 
of a moral crisis; it is like August, 1914, when the 
prevailing opinion was "Poor France, they will never 
be able to fight." 

To-day some people say, "Poor France, they will 
never be able to work again." 

You found out that we could fight; we are already 
working again. 

The final help for our fight against our war de- 
struction you will give us, I know, as you gave the 
successful effort which destroyed the German night- 
mare. 

And I am perfectly confident that those who want 
to help us out of sympathy, to-day, will find out 
promptly, with true American insight, that it is at 
the same time good business. 

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